The 7 Pillars of Forex Trading, Part Two

Posted August 13th, 2010 by Sam Evans in Education

The 7 Pillars of Forex Trading, Part Two

To read the first three pillars of forex trading, click here.

PILLAR 4: LIVE DATA FEEDS
There is simply no excuse for any Forex trader to not have access to live charts. This is the biggest market in the world and we can even get real-time price feeds and charts for Forex pairs and prices for free on the internet sites such dailyForex.com and Forexstreet.com. With this in mind, I would like to reference back to last week's article, A Second Opinion Can Sometimes Help, where I suggested that the complete Forex trader should always use the charts that their broker provides to execute trades, as these prices will match their execution prices. In the case of trading Forex Futures contracts, this becomes a true Direct Access Market, with all volume and trading going straight through the Chicago Mercantile Exchange, giving traders discrete order placement, first-come first-served status on pending orders and true market volume. For the serious Intraday Currency trader, this really is the way to go.

PILLAR 5: RISK MANAGEMENT
As I have said many times before, trading is not really about making money, but instead it is all about capital preservation. Without money in the account, you can't trade. Always risk small percentages of your account and use decent risk to reward ratios which, in time, will provide you with a buffer to cover the losses that you will endure. Risk rewarding ratios are far more important in the longevity of a trading career than hit rates. I always say to my students that trading is not about how you win, but how you lose. Lose small and win big is the idea and if you are disciplined enough, you can still make good money with as little as a 30% success rate. This is one of the only businesses in the world where we can get paid for being overall losers, but only if strict risk management principles are adhered to at all times.

PILLAR 6: PSYCHOLOGY
To me, the mind is where the biggest battle will ever take place for a trader. In this game, you can easily become your own worst enemy if you don't keep your emotions in check at all times. Some experts would say that after your trading strategy has been defined and the risk management principles are put in place, trading then comes down to as much as 90% psychology. Only we can stick to our plan of action and remain calm, unemotional and patient during the peaks and troughs the markets have to offer. Money is only at risk when trades are placed, and after a few losers, the fear factor can play funny tricks on your account, just as much as greed can, too. Learn to not follow the herd like a sheep and be decisive in your goals and trading. If you do what everyone else does, then you will typically get what everyone else gets.

PILLAR 7: THE TRADE PLAN
Someone once said to me that "A goal without a plan is nothing more than a wish." Never a truer word said in Forex trading. This pillar is the culmination of the previous six and becomes the more important piece of the puzzle. Your trading plan should be written to compliment your personal aims for trading as well your own character and make-up. It should be based on the capital you are working with, the style of trading you are looking to carry out and your own tolerance for risk. I like to think of the plan as being my instruction booklet of sorts for my trading. It tells me what to do, what to look for and how to behave in all market scenarios. It is designed to keep me on track and disciplined, to the extent that I should never have to ask myself "what do I do now?" Consistency comes from measurable results and sticking to a detailed plan of action will help a trader to keep track of their performance at all times. Fail to Plan, Plan to Fail...
I hope this was of use to you. If you would like to find out more about the impact and importance of the 7 Pillars, contact your Education Counselor to sign up for one of our many courses.

Take care and thanks,
Sam Evans

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